Weekly Briefing No. 143 | Show Me the Alpha

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Welcome to The FR. Here’s what’s in store for this week:

  • Aperture Investors; Nucleus195; Margrethe Vestager

  • Divido; JUMO; Cleo; AlphaNetworks; Ui Path; MJ Freeway

  • CME’s Terry Duffy, Crypto-telenova week; Airbnb

  • Tradeshift’s Christian Lanng

  • Crowdfunding & cancer quackery

  • Sultan Meghji on China’s quantum edge

  • Jackson Hole & path dependency

LAUNCHES & SALVOS

Show me the alpha, then I’ll show you the money.

“A lot of the talent we’re finding is coming from hedge funds that have been attracting talent away from the fixed fee space for years.” That’s what Peter Kraus told The FR’s Gregg Schoenberg after Thursday’s launch of his new asset management start-up, Aperture Investors, in partnership with Italian financial giant Generali. Specific offerings haven’t been rolled out, but our read of the initial press release and website indicates that Kraus is infusing a welcomed dose of accountability into the world of AUM-driven asset management. How? By aiming to fix the wounded alliance between investors and their fund managers. Specifically, Aperture plans to link fund fees to performance and incorporate deferral and clawback provisions. The result: If a manager matches or lags behind their benchmark, the Aperture fund will charge a skinny fee that’s comparable to passive ETFs for that strategy. But if a manager beats their benchmark over the longer term, they are able to earn a performance-linked fee on the alpha (up to a cap). As such, it looks like Aperture will provide an innovative hedge for investors of all stripes. That sounds like a square deal to us, as we believe that there are still many investors who believe in and yearn for alpha. However, they don’t want to fork over fat fees for it on the come. And really, in 2018, why on earth should they?

Nucleus195 takes aim at research.

Despite its name, this company is not a buzzy biotech start-up filled with PhDs. Rather, it’s tackling a more complex topic: fixing equity research in a post-MiFID II world. Founded by savvy ex-traders including former algorithmic and dark pool pro Doug Rivelli, the company just announced the launch of its worthy attempt to bring more price transparency and efficiency to the creation, consumption and distribution of research across global markets.

Open source is the future of financial services.

Sponsored by Linux Foundation

We’re convinced that open source software development isn’t a key to the future of financial services. It’s the key. That’s because the most important technologies to Finance’s advancement, including AI, Kubernetes/containerization, Big Data and blockchain, can be developed better, faster and more securely when open source is leveraged. And when it comes to advancing open source, nobody does it better than our friends at The Linux Foundation. That’s why we urge you to check out The Linux Foundation’s upcoming Open FinTech Forum on October 10th and 11th in New York. Plus, FR readers can receive a 15% discount if you use code OFTF15TFR. To learn more and register, see below.

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What’s the deal with Margrethe Vestager?

Jerry Seinfeld once joked that you don’t tip over a soda machine in one attempt. You first have to rock it back and forth a few times to generate some momentum. We have no idea if EU Competition Commissioner Margrethe Vestager is a fan of the Massapequa-bred comic (and owner of a $17,000 espresso machine). However, it looks likely to us that given her recent press conference, Vestager has pretty much made up her mind to go after Amazon and the press conference was a momentum-building exercise. And given Vestager’s track record of securing big fines from US tech giants, Amazon despite announcing an armada of Alexa-related products this week  should take notice.

FINANCINGS

Venture rounds are eating the world.

Early in the week, we learned that Divido, a London-based provider of POS credit line offerings to merchants, raised $15 million from a formidable investment group. Also, digital financial assistant Cleo announced $10 million, and South Africa’s JUMO raised $52 million from Goldman Sachs and others. Meanwhile, on American shores, AlphaNetworks bagged $10 million to fix the broken economics of the media industry (they are badly, badly, badly broken), our friends at Groundfloor raised $4.2 million via an online public offering, and robotic process automation star UiPath raised — get this — a $225-million Series C. Finally, as many people have noted, the cannabis world is going bonkers right now. The latest craze is driven by reports that Coca Cola is likely returning to its medicinal roots by preparing to roll out a CBD soda. As a result, cannabis stocks went nuts. Amidst the frenzy, MJ Freeway, one of the original seed-to-sale POS providers, announced a comeback Series C.

REFLECTION

Bravo, Terry.

This week, the CME Group’s CEO Terry Duffy published an opinion piece that delivered a frank message to America’s financial services industry: Despite a long-running bull market, the reputation of the financial sector still stinks. That, in turn, has harmed recruitment efforts. We applaud Duffy for defending the importance of the financial services sector but acknowledging that the industry has lost its mojo with America’s youth. Mind you, we’re not sure that extolling the joys of a career in Risk or KYC during kids’ pimply Instagram years is optimal, but that’s beside the point. What Duffy did is simple: He dressed down his own industry for its own good.

Airbnb asks SEC to change a key rule.

On Friday, Airbnb asked the SEC to allow hosts to qualify for stock options and equity ownership in the company while it’s still private. For that to happen, the SEC would need to modify its Rule 701 to make room for a new kind of stakeholder. Yes, there are considerable complexities to making this change. But really, if you take a step back, it just make sense. Know what also would make sense? For Airbnb, which is a fabulous company, to finally get off its futon and go public.

CRYPTO

The headlines continue to inflame passions.

The telenovaesque drama continues on the back of press reports indicating that about $60 million in crypto was absconded from Zaif, a Japanese exchange owned by the generically named Tech Bureau Corp. In the US, meanwhile, New York Attorney General Barbara Underwood issued a scorching report on most of America’s leading crypto exchanges that basically called them a bunch of hot messes. On the back of this report, Kraken CEO Jesse Powell responded by channeling his inner Cardi B. However, the drama wasn’t all negative as Michael Novogratz called the crypto bottom, Tim Draper reiterated a $250,000 target price on Bitcoin, and XRP had a dramatic reversal of fortunes.

TROVE

Blockchain is not ready for prime time in supply chains.

That’s the gist of recent comments made by Christian Lanng, CEO of Tradeshift, this week at the World Economic Forum’s conference in Tianjin, China. Global supply chains aren’t purpose-built for change, said Lanng. However, Lanng does believe that digitizing global supply chains (which still run on faxes, emails and spreadsheets) is very important. Blockchain, though, simply isn’t “mature enough” yet, he said.

Are crowdfunding sites fueling cancer quackery?

Yes, according to Dr. David H. Gorski, a surgical oncologist at the Barbara Ann Karmanos Cancer Institute, in a post featured on Science-Based Medicine. In the piece, Gorski discusses how quack doctors use platforms such as UK GoFundMe and JustGiving to prey on the families of victims fighting serious cancers (the media also plays an abetting role). And while Gorski supports the idea of greater vetting of cancer appeals by the platforms, he acknowledges the challenge: “How would they deal with clinics that offer conventional treatments alongside quackery?”

Note: We want to give an unsolicited shoutout to Feedly for helping us source off-the-radar but important stories like the one above.

Has China already won the battle for quantum supremacy?

Recently, our good friend Sultan Meghji posed that question in an essay worth reading twice. Meghj cites the quantum advancements associated with several North American tech companies. He also allows for the possibility that the US government has made significant quantum advancements that are hush-hush. Still, we can’t argue with Meghji’s concern, given China’s launch of a quantum super center in the Anhui Province and its Micius Satellite, which, says Meghji, is a key step in developing military and financial applications. He also points to the the paltry $1.25 billion that has been proposed under the US National Quantum Initiative Act, which passed the House last week. Our takeaway: We hope this bill is a smokescreen for a larger, confidential initiative. Because a $1.25-billion expenditure from the world’s most powerful nation (with a trillion-dollar-plus discretionary budget) on perhaps the most powerful technology ever is nowhere close to being sufficient.

Monopsony and fly fishing don’t mix.

How did the Kansas City Fed’s annual Jackson Hole Economic Symposium became the most important central banker confab in the world? Simple. In 1982, Fed Chairman Paul Volcker was seduced by the rich trout fishing in the Jackson Hole area. Fast-forward to today, and although Volcker is no longer Fed chair, and our economy is much different, central bankers are having a rough time applying their old gear to America’s current wage stagnation problems and “underhealth” issues.

QUOTE OF THE WEEK

“If you're not in the arena also getting your ass kicked, I'm not interested in your feedback.”

~ Brené Brown